According to a report by ZDNET Korea, SK Hynix has scaled back its less profitable CMOS image sensor (CIS) and foundry businesses while reinforcing a strategy that focuses on high-margin high-bandwidth memory (HBM) and AI memory.

Citing industry sources, ZDNET Korea noted that SK Hynix has reduced its R&D investment in CIS and cut production capacity by more than half compared to last year, with estimated monthly output of 12-inch wafers dropping to fewer than 7,000 units. Additionally, staff from the system-on-chip (SoC) design department, previously responsible for designing memory controllers, are being reassigned to the HBM division.

The report also mentions that SK Hynix has increased its SoC design workforce this year, directing them toward projects aimed at developing next-generation memory solutions with computational capabilities.

SK Hynix’s strategy is to downsize certain business areas and concentrate resources on the more profitable HBM. The company is also focusing on future growth areas such as Compute Express Link (CXL), processing-in-memory (PIM), and AI solid-state drives (AI SSD).

The report quotes a semiconductor industry expert stating that it takes only three months to achieve return on investment (ROI) after establishing an HBM production line. For companies, investing heavily in HBM, which has high demand and profitability, is a logical decision.

TrendForce has noted that HBM’s average selling price is several times higher than that of conventional DRAM, with a price gap around five times greater than DDR5. While contract prices for general DRAM and NAND are expected to fall in the fourth quarter, HBM prices are projected to rise by 8% to 13%.

In fact, the news of reduced CIS R&D and production capacity is not new. Earlier this year, media outlets reported that due to decreasing demand, SK Hynix planned to reduce its CIS production and shift focus to its HBM business.

Additionally, SK Hynix has downsized its foundry business. According to a May report by the Korea Economic Daily, the board of directors of SK Hynix’s foundry subsidiary, SK Hynix System IC (Wuxi) decided to sell a 21.3% stake in its Wuxi plant to the Wuxi Industrial Development Group for an estimated $349.3 million.

(Photo credit: SK Hynix)

According to the Economic Daily News, the AI wave is ushering in a demand for updated specifications in CMOS Image Sensors (CIS), with the global CIS leader, Sony Corporation, aggressively positioning itself to take advantage of this trend. As part of the semiconductor industry’s move towards localized production, Sony has placed significant orders with TSMC’s new Kumamoto plant in Japan, boosting the production volume for the fourth quarter and rapidly increasing the new plant’s capacity utilization.

TSMC does not comment on individual customers or orders. Industry sources point out that the CIS component market previously faced an inventory adjustment issue for over a year. Recently, with clients restarting stock replenishment in anticipation of a recovery, coupled with the AI effect, various end-use applications are adopting lenses developed specifically for AI applications. This shift is expected to drive a new wave of demand for replacing old lenses with new ones to capitalize on AI lens opportunities.

Sony is optimistic about future opportunities in automotive and consumer sectors, and intends to extensively utilize TSMC’s 22nm process for producing CIS components and Image Signal Processors.

Furthermore, to seize the AI business opportunities, Sony has launched Digital Signal Processors (DSP) equipped with AI algorithms, which are expected to enhance applications such as human motion analysis, image processing enhancement, or human tracking. Especially with Sony securing large orders from clients, it is poised to become a major product line in the AI era.

TSMC’s new Kumamoto plant in Japan recently opened and is in the equipment installation phase, with production expected to start as early as the fourth quarter, focusing on 40, 28/22 nm processes for automotive and industrial clients.

The joint venture company for TSMC’s Japan plant, JASM, includes Sony as the largest shareholder besides TSMC. Sony has been a major client of TSMC for outsourced wafer production for many years. With the Kumamoto plant set to start production by the end of the year, Sony is almost certain to secure a significant share of wafer capacity, becoming a major client that fills the capacity utilization rate of TSMC’s Kumamoto plant.

(Image: TSMC)

According to the Economic Daily News’ report, industry sources indicate that Samsung, a major supplier of CIS, has issued a price increase notice to customers on November 29th, projecting an average price increase of up to 25% in the first quarter of next year.

The individual product lines may see an even higher increase, reaching levels of up to 30%, primarily in specifications with 32 million pixels and above. This suggests that the CIS market is poised for a new cycle of price increases.

Previously, the CIS market was impacted by subdued demand in the consumer market, leading to a decline in market prices and making CIS one of the first component to experience price declines. However, entering the latter half of this year, the demand for smart devices, particularly in the smartphone market, has started to recover comprehensively.

This is driven by strong procurement efforts from Chinese smartphone brands, significantly boosting inventory demand and becoming the catalyst for the rapid clearance of CIS inventory.

(Photo credit: Samsung)

Sony, a major supplier of Apple’s camera sensors, suggests weaker demand for the upcoming iPhone 15 due to a lackluster year for Apple’s iPhone sales. Economic challenges have affected iPhone sales, though service revenues have offset losses. The flagship iPhone 15 series is scheduled for a September release.

Sony the world’s largest sensor supplier, had previously projected a gradual recovery in its smartphone imaging and sensing business by the second half of 2023. However, during its latest earnings call, the company revealed that this recovery might not take shape until 2024, mainly attributing the delay to underwhelming sales in the Chinese market.

Sadahiko Hayakawa, Sony’s Senior General Manager of Finance, stated, “The recovery pace of the Chinese smartphone market has been slower than our expectations, and the situation in the US market is worsening. We originally anticipated the smartphone market to recover starting from the second half of this fiscal year, but our current assessment suggests that it might not happen until at least next year.”

Sony’s top brass attribute a cautious outlook to a sluggish global economy and geopolitical uncertainties, hinting at muted demand for the iPhone 15 series. This stance resonates with analyst Ming-Chi Kuo view at TFI Securities, forecasting that iPhone 15 might struggle to surpass iPhone 14 sales records, posing challenges to Apple’s suppliers in H2 2023.

Apple reported a 2.4% decline in iPhone sales for its third fiscal quarter, reaching $39.7 billion, slightly below analyst estimates of $39.9 billion. The US region saw a 5.6% year-on-year drop in sales, highlighting a performance that falls short of expectations.

(Source: https://news.cnyes.com/news/id/5282617)

As the mass production of the new iPhone draws near, TrendForce, in April this year, raised concerns in the smartphone industry about several design changes made to the 2023 iPhone models almost half a year ahead of production. The industry is closely monitoring whether related components can keep up with the production schedule to ensure smooth execution of subsequent assembly plans. Recently, TrendForce provided updates on the production progress and details of these components.

According to TrendForce’s investigation, two critical components in the iPhone supply chain are causing worries about potential supply issues – the CIS (CMOS Image Sensor) and the titanium alloy frame. Currently, there are still bottlenecks in the production of these components that need to be overcome.

Regarding the CIS, the bottleneck arises from Sony’s supply of the new 48MP CIS, which is expected to be used in iPhone 15 and iPhone 15 Plus. This CIS adopts a new stacked design, separating the CIS photodiodes and peripheral transistors into three layers instead of the previous double-layer structure. This poses a significant challenge to yield rates, and despite Sony’s efforts to increase production capacity to cope with the yield ramp-up difficulties, the supply situation does not meet anticipated levels, affecting the initial production schedule of the entire device.

As for the titanium frame, due to the elimination of the pressure-sensitive button structure and the slight adjustment in the opening for the mute switch, the suppliers need to re-allocate, set up, and verify the basic operating time of the production lines.

Additionally, the processing procedures for titanium are more complicated compared to stainless steel, which leads to longer production lead times. TrendForce confirmed recently that the titanium frame for the new iPhone is currently one of the components with lower yield rates and supply stability. Therefore, suppliers have expanded production capacity by 20-30% and are working diligently to ensure that even if the initial supply is tight during the early stages of production, they can respond accordingly, ensuring that the launch and supply of the entire device will not be affected.

Given the supply constraints of these two components mentioned above, TrendForce believes that Apple may increase the production proportion of the two Pro models in 3Q23 to fill the gap caused by the initial iPhone 15’s production capacity shortage. This adjustment, in an optimistic scenario, will only involve shifting production proportions between different models in two quarters, with no impact on the annual shipment performance. TrendForce assesses that this possibility is more likely under the current circumstances.

However, if the CIS yield bottleneck is difficult to overcome, it could lead to a substantial reduction in the shipment volume of the 2023 iPhone models. TrendForce will continue to monitor the situation closely.